Running a dealership means juggling countless year-end responsibilities—from inventory management to sales goals to employee compensation. Now, with new federal tax legislation affecting how you report qualified overtime pay, you might be wondering: “Do I need to overhaul my payroll systems before December 31st?”
The short answer is no—but there’s a critical action you need to take to ensure your employees have the necessary information to report their potential qualified overtime pay deduction.
The IRS just released Notice 2025-62 on November 6, 2025, providing temporary penalty relief for new reporting requirements under the One, Big, Beautiful Bill Act (OBBBA). While this relief gives you breathing room for 2025, it doesn’t eliminate your responsibility to help employees access the new tax deduction they’re entitled to. Without the right information, your service technicians, detailers, and other employees who earn overtime pay could miss out on valuable tax savings—and that’s not the kind of year-end bonus anyone wants.
The New OBBBA Legislation Creates a Tax Deduction for Qualified Overtime Pay
Starting with the 2025 tax year (through 2028), employees may be eligible to claim a new deduction for qualified overtime compensation on their individual tax return up to $12,500 for a single taxpayers and up to $25,000 for joint filers, with a phase out of the deduction beginning when their modified adjusted gross income exceed $150,000 for a single taxpayer and $300,000 for joint filers. The OBBBA requires that the qualified overtime pay is to be included on the employees’ Form W-2 or nonemployee’s Form 1099-NEC.
This potentially saves your employees significant tax dollars—but only if they have the documentation to claim these deductions.
The IRS Granted a One-Year Transition Period
The IRS will not penalize employers who fail to separately report overtime pay amounts on 2025 information returns (Forms W-2 or 1099-NEC), as long as all other information is complete and accurate. This relief applies only to the 2025 tax year. Beginning in 2026, the IRS will require full compliance using revised forms and updated electronic reporting systems.
Your Responsibility: Voluntary (But Highly Recommended) Employee Documentation
While the IRS won’t penalize you for not modifying your 2025 W-2 forms, they strongly encourage employers to voluntarily provide separate statements or digital records showing:
Total qualified overtime pay earned
Occupation codes (in some cases)
How to Provide This Information – Three Simple Options
Option 1: Use Form W-2 Box 14
The easiest approach for most dealerships is adding this information to Box 14 of your standard W-2 form. Your payroll system likely already supports custom Box 14 entries. Work with your payroll provider to add a line “Qualified Overtime” with the corresponding eligible overtime pay dollar amounts.
Option 2: Create a Supplemental Written Statement
Issue a separate year-end statement to affected employees listing their qualified overtime pay totals. This can be a simple letter on dealership letterhead that employees include in their tax records to assist with their tax return preparation. Include clear labels, dollar amounts, and your EIN for reference.
Option 3: Digital Employee Portal
If your dealership uses an online employee portal, post individual compensation summaries there that employees can download and save. This creates a permanent digital record that employees can access when preparing their tax returns.
Which Employees Need This Information?
Focus on employees who received:
Overtime compensation: Technicians, parts department staff, detailers, administrative staff, etc., i.e. hourly employees who worked more than 40 hours per week
Action Steps Before December 31, 2025
Step 1: Coordinate with Your Payroll Provider Now
Contact your payroll company this week to confirm they can pull separate reports for overtime pay for 2025. Don’t wait until late December when payroll providers are swamped with year-end processing.
Step 2: Decide on Your Delivery Method
Choose whether you’ll use W-2 Box 14, supplemental statements, or your employee portal. Consider what’s easiest for your HR team and clearest for your employees.
Step 3: Communicate with Employees
Let affected employees know they’ll receive this documentation and explain why it matters. A brief email or bulletin board notice in mid-December helps employees understand what to expect and how to use the information.
Step 4: Keep Records
Maintain copies of whatever documentation you provide. While this is voluntary for 2025, demonstrating good-faith effort to help employees protects you and establishes procedures for mandatory 2026 compliance.
What Happens If You Do Nothing?
The IRS won’t penalize you for 2025 but consider the consequences: Your employees may miss valuable tax deductions they’re entitled to, creating frustration and potential payroll questions down the road. More importantly, you’ll need to implement these reporting systems for 2026 anyway—so taking action now gives you a trial run without penalty risk.
Without proper documentation, your employees who worked significant overtime all year might leave thousands of dollars in tax savings on the table. Your employees work hard for your dealership; helping them maximize their tax benefits is both good business practice and good employee relations.
Schedule your year-end tax consultation today. [Link to consultation/contact page]
Why You Can Trust HBK’s Dealership Solutions Group
As a Top 50 accounting firm with specialized expertise in automotive retail, HBK has guided dealerships through every major tax change affecting your industry. Our Dealership Solutions Group combines technical tax knowledge with practical, boots-on-the-ground understanding of how dealerships operate, ensuring you stay compliant without disrupting your operations.
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